Big Box retailing has a market capitalization of $500 million and 20 million shares outstanding. In order to finance its growth, the management of Big Box plans to raise further capital through a rights issue. All shareholders will be issued ten rights to purchase a new share at a price of $1.00. What will the price of a share be after the SEO, if all shareholders exercise their rights?

Question

Quizplus · Accepted Answer

D) No. of new shares issued = 2 million
Total shares = (20 million + 2 million) = 22 million
New capital raised = (20 / 10) × $1.00 = $2 million
Total capitalization =$(500 + 2) = 502 million
Price per share = ($502 / 22) = $22.82

Big Box Retailing Has a Market Capitalization of $500 Million